Money and Central Banking
Module code: EC2051
How do central banks control inflation? Why do small adjustments to the policy rate echo through mortgages, exchange rates and consumption and investment decisions? This module equips students with the analytical framework to understand such questions. We revisit the classical aggregate-supply/aggregate-demand model and introduce a basic version of the New Keynesian model, which is an example of the modern dynamic equilibrium models which are used in contemporary macroeconomic research and policy work. We analyse key economic events from the last decades through the lens of these models.
Core themes
- Formation of short- and long-term interest rates and the expectations that link them
- Operating instruments of modern central banks—open-market operations, standing facilities and balance-sheet policies
- Transmission channels through which monetary policy influences output, prices and asset valuations
Empirical applications
The module focuses on giving you a better understanding of historical and current episodes:
- The oil-price shocks of the 1970s and the rise of inflation targeting
- Bank runs and the 2007-09 global financial crisis
- Large-scale asset purchases (quantitative easing) since 2009
- The monetary response to the COVID-19 recession and its aftermath
Skills you will develop
By the end of the semester, you will be able to
- Describe the tools central banks use to manage inflation and stabilise the economy
- Evaluate when unconventional measures - such as quantitative easing - are warranted and how they interact with financial markets
- Interpret central bank policies and communications (inflation reports, meeting minutes, speeches) within a rigorous theoretical framework
- Apply advanced economic models - intertemporal choice, the Diamond-Dybvig banking model and the basic two-period New-Keynesian model - to analyse monetary policy issues.